Emissions trading as a policy option for greenhouse gas mitigation in South Africa

 

 

Emily Tyler^I; Michelle du Toit^II; Zelda Burchell^III

^IClimate Change Economist, Cape Town
^IIClimate Change Practice Genesis Analytics, SouthSouthNorth Projects Africa
^IIIWSP Environment & Energy

 

 

---

ABSTRACT

Emissions trading is fast becoming one of the most popular policy instruments for reducing greenhouse gas emissions internationally. This hybrid instrument combines the certainty of mitigation volume delivered by regulation, whilst also harnessing the power of the market through an economic approach to deliver migitation price discovery and least cost mitigation opportunities. Theoretically, this is a powerful combination.
However, the realities of uncertainty and lack of information result in international emissions trading experience deviating substantially from the instrument's theoretical potential. This is of particular relevance in a developing country context. Scheme design is therefore very important to counter these market failures, and policymakers are required to strike a balance between this and introducing distortions. Given that the instrument is in its infancy, performance of the various schemes up and running internationally is inconclusive. Emissions trading proponents argue that the benefits will be realised over time, once the initial teething problems are overcome.
The paper is the result of research conducted in 2008 and presented at the South African Climate Policy Summit in 2009. It considers theory and international experience in application to the potential establishment of an emissions trading scheme in South Africa. Lack of data, capacity and experience with markets in the energy sector present complications in the use of the instrument as a central part of the nation's mitigation policy suite, as do market concentration issues. Should an emissions trading be proposed, the paper argues for ways in which its design could address these complications, and align with the current energy security imperative resulting from the electricity crisis in the country, the twin political objectives of poverty reduction and employment creation of the recently elected government, and the timeframes proposed by the Long Term Mitigation Scenarios.

Keywords: emissions trading, emissions trading scheme, greenhouse gas mitigation, Long-term Mitigation Scenarios

---

 

 

Full text available only in pdf format.

 

 

Acknowledgements

This paper, derived from a report, is the result of collaboration between the Energy Research Centre (ERC), Environmental Policy Research Unit (EPRU) and Genesis Analytics. The ERC and EPRU are both research units at the University of Cape Town. The research by Genesis Analytics was commissioned by the ERC, drawing on National Research Foundation (NRF) funding which is gratefully acknowledged.

 

References

Common M., Perman R., Ma Y., and McGilvray J. (1999). Natural Resource and Environmental Economics. 2nd Edition. Harlow: Longman.         [ Links ]

DEFRA. (2006). Emissions Trading: The UK's experience. Presentation.         [ Links ]

Ellerman, A.D., and Jaskow, P, (2008). The European Union's Emissions Trading System in Perspective. Pew Centre on Global Climate Change. Arlington, USA.         [ Links ]

Eskom. (2008). Fact Sheet: Power Conservation Programme - managing demand and making space for growth South Africa's Current Energy Crisis.         [ Links ]

Environment Protection Facility. Reclaim, (2002): An Evaluation of the South Coast Air Quality Management District's Regional Clean Air Incentives Market - Lessons in Environmental Markets and Innovation.         [ Links ]

European Commission, (2008). Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community.         [ Links ]

European Commission, (2007). EU action against climate change. EU emissions trading: an open system promoting global innovation, Belgium.         [ Links ]

European Commission, (2007). Second Workshop on data consistency between national GHG inventories and reporting under the EU ETS. Presentation.         [ Links ]

European Commission, (2007). Combating Climate Change: the EU leads the way.         [ Links ]

European Commission, (2005). Review of EU Emissions Trading Scheme: Survey Highlights. Ecofys.         [ Links ]

Fisher, B., S. Barrett, P. Bohm, B. Fisher, M. Kuroda, J. Mubazi, A. Shah, and R. Stavins. (1996). 'Policy instruments to combat climate change,' in J. P. Bruce, H. Lee, and E. F. Haites, eds., Climate Change 1995: Economic and Social Dimensions of Climate Change (Cambridge, England, Intergovernmental Panel on Climate Change, Working Group III, Cambridge University Press), pp. 397-439.         [ Links ]

Greenhouse Gas Reduction Scheme, (2008). Introduction to the Greenhouse Gas Reduction Scheme (GGAS). www.greenhousegas.nsw.gov.au Accessed October 2008 (10).         [ Links ]

Grubb M. (2006). EU ETS and the future. Presentation to Point Carbon Conference, Copenhagen, February 2006.         [ Links ]

Hovi J., and Holtsmark B. (2006). Cap-and-trade or carbon taxes? The feasibility of enforcement and the effects of non-compliance. International Environmental Agreements Journal. Volume 6. Pp 137-155.         [ Links ]

LTMS Cabinet release www.deat.gov.za.         [ Links ]

MacGill I., Nolles, K., and Outhred, H. (2003) Market Based Environmental Regulation in the Restructured Australian Electricity Industry. Prepared for 26th IAEE International Conference, Prague, Czech Republic.         [ Links ]

Muller B., (2008). To Earmark or Not to Earmark. Oxford Institute for Energy Studies. EV 43. November 2008.         [ Links ]

New South Wales Government, Department of Energy, Utilities and Sustainability, Extending the Greenhouse Gas Abatement Scheme. Policy Paper. New South Wales Government, New South Wales, Australia (9).         [ Links ]

Point Carbon Advisory Services, (2008). EU ETS Phase II - The potential and scale of windfall profits. Report for WWF.         [ Links ]

Republic of South Africa (RSA) (2004). South Africa: Initial National Communication under the United Nations Framework Convention on Climate Change. Submitted at COP-9. Pretoria. www.unfccc.int/resource/docs/natc/zafnc01.pdf.         [ Links ]

Runge-Metzger, A., (2008). In-session workshop on means to reach emission reduction targets, AWG 5.1. Presentation, 1-3 April 2008. Bangkok.         [ Links ]

Scenario Building Team, (2007). Long Term Mitigation Scenarios: Technical Summary. Department of Environment Affairs and Tourism, Pretoria, October 2007.         [ Links ]

Smith S., and Swiezbinski J., (2007). Assessing the performance of the UK Emissions Trading Scheme. Journal of Environmental Resource Economics. Volume 37. Pp. 135 - 158. May 2007.         [ Links ]

Van der Merwe, M.R., and Scholes, R.J., (1998). South African Greenhouse Gas Emission Inventory for the years 1990 and 1994. Pretoria, National Committee on Climate Change.         [ Links ]

Van Schalkwyk, M., (2008). Media Statement on 28 July 2008 www.info.gov.za/speeches/2008/08072816451001.htm. www.ghgprotocol.org accessed February 2009.         [ Links ]

 

 

Received 16 March 2009
Revised 23 February 2011